Tuesday 22 January 2008 10.15 EST
First published on Tuesday 22 January 2008 10.15 EST

British politics is in a state of extraordinary flux. What is at stake is the emergence of the first truly post-Thatcherite political party. But what is breathtaking is that we don't yet know whether it will be Labour or Conservative.

Some assume the prize had already gone to New Labour. Not so. New Labour can best be defined as an attempt to humanise Thatcherism, not replace it. Unlike crude neoliberalism, New Labour recognised the state as a necessary tool to provide at least some protection in a global economy. Hence the focus on education and training. But, like good free marketeers, the party never really believed in social justice, only employability. So entrenched was free-market thinking, New Labour transferred the rules of the economy to public institutions, resulting in the commercialisation of public services.

It was better than the indifference of Thatcherism but it accepted the central assumption of Maggie's regime, that "you can't buck the market". Now both parties believed that "there is no alternative" (Tina) to putting the economy first. The market was not just more efficient, but provided a moral vision for rampant individualism in which democracy is replaced by consumerism.

It is this prioritisation of the needs of the market over society that has sown the seeds of today's social recession in which inequality and anxiety abound. Today we stand alone, without the bonds of solidarity and community to withstand the onslaught of global competition. Free markets create the rootless people that define our world. We are all in the Dragons' Den fearing rejection, failure and humiliation with no one to blame for brute bad luck but ourselves.

Strangely though, as the tide turns against New Labour it isn't ebbing back to raw neoliberalism. People can still taste the free-market medicine of the 1980s and don't want more. David Cameron knows this. In a speech shortly after becoming leader he said that "social justice means social responsibility: the idea that we're all in this together, that there is such a thing as society" - but went on to say: "It's just not the same thing as the state."

But in his attempt to detox the Tories he is exposing the contradictions in his project. With the best will in the world the Women's Institute is never going to protect people from the forces of global capitalism. Neither will raising the threshold on inheritance tax or opting out of the social chapter. Cameron will have to choose or be found out.

For Labour, though, there is no going back. The end of deference and the emergence of self-confident and autonomous individuals is to be welcomed. But how is this new-found freedom to be expressed: strongly, as citizens able to collectively remake our world; or weakly, as consumers just picking what is put on the supermarket shelves before us? If the bureaucratic state has failed and the market state is proving too divisive, the answer must lie in a democratised and humanised state capable of addressing both market failure and the social breakdown it causes.

It is not the presence of markets we should object to. Markets are just an amoral mechanism to distribute goods and services, whose powers to create wealth are only matched by the resulting injustice, thriving as they do on innovation and destruction in equal measure. They work because they never take prisoners in the quest to create winners and losers. In the relentless pursuit of profit they know no boundaries, whether social, moral or environmental.

Our beef is with neoliberalism and its British incarnation of Thatcherism: the ideological belief that markets are always preferable to the state or other social institutions. For the notion of the social demands a limit on the role of the market. There are places where profits should not and must not be secured.

And here a perplexing phenomenon may take hold. In its single-minded bid for power, New Labour did not start out to embed the neoliberal project. But when the electoral game is to persuade the public you are no longer what you are supposed to be, then to convince them you must first convince yourself. Means shaped ends as the party of Labour became primarily the party of capital. Will the reverse now happen to the Tories? As only Nixon could go to China, could only Cameron attempt to save society, or will Labour take up the real political challenge? Either way Tina must die - or eventually society will.

Politicians never create waves, but clever ones know when to ride them. David Cameron is in a clever position but his chance can only be taken by continually demoralising the state when the moment demands its remoralisation with a new language of shared risk and social security. In Labour's ranks Douglas Alexander and Ed Miliband in the cabinet and Jon Cruddas and Jon Trickett on the backbenches know what society needs - to be put first. They know there can be no new social democracy without embedded social relations and a market that is kept in its place.

While Labour longs for social justice, it has balked at the challenge of making it a reality. If the party continues to refuse to seize the moment by defining the terms of this new collectivism then Cameron, in all his contradictions, will.